European Hotel Transactions 2003
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European Hotel Transactions 2003 This issue has been published by the London Office of HVS International 2003 Edition Philippa Bock and Bernard Forster Notable single asset transactions in Introduction European Single 2003 included the 404-room Principe he volatility in the hotel market in Asset Transaction de Savoia hotel in Milan to the Dorchester Hotel Group for 2002 continued into 2003 with € € events such as the war in Iraq and Activity approximately 275 million ( 681,000 T per room); the 141-room Quinta do the sudden and unexpected outbreak of espite the continued volatile SARS. However, while hotels are often trading conditions in 2003, the Lago Hotel in the Algarve to a the first to suffer during a challenging single asset hotel investment private investor for approximately D €35 million (€248,000 per room); business environment, hotels have the performance was particularly advantage of recovering more quickly impressive, achieving approximately the 212-room Le Meridien Barcelona than other real estate asset classes and €3.1 billion, just 3% below the record to the German open-ended fund € Deka Immobilien Investment for are considered to be a useful indicator high of approximately 3.2 billion in € € of future economic activity. Despite the 2001. During 2003, HVS recorded a approximately 87 million ( 410,000 continued decline in RevPAR in the total of 91 single asset hotel per room); the 167-room Ritz hotel in majority of European hotel markets in transactions of above €7.5 million, the Madrid to Orient-Express Hotels and Omega Capital for approximately 2003, single asset hotel investment criterion set for inclusion within our € € activity changed pace considerably; survey. Single asset transactions 125 million ( 749,000 per room); the meanwhile, portfolio and corporate represented approximately 47% of total 122-room Hotel des Bergues in Geneva activity remained at a similar depressed investment activity, which is much to Kingdom Holding Company for approximately €75.6 million level with the previous year. Overall, higher than in previous years, with the € HVS recorded a 21% increase in average at approximately 35%. In ( 620,000 per room); the 118-room total investment activity in 2003 contrast, during 2002 we recorded a Brown’s Hotel in London in a joint compared with the previous year, to total of 76 single asset hotel venture agreement between Sir Rocco approximately €6.6 billion. Hotel transactions, which represented a total Forte & Family and Halifax Bank of € Scotland for approximately €75 investment activity was fuelled by a sales volume of 2.1 billion, 30% lower € significant number of opportunistic than the volume achieved in 2003. This million ( 635,000 per room) and the acquisitions, as well as non-traditional increased level of activity in 2003 Mayfair InterContinental hotel in hotel investors seeking to diversify confirms the general consensus that the London to Radisson Edwardian Hotels for approximately €166 million their property portfolio and acquire majority of hotel operating markets are € higher-yielding investments. at a turning point. ( 575,000 per room). Despite the difficult trading conditions in recent times, it is Figure 1 Total Hotel Investment Volumes 1998–03 (€000,000s) interesting to note that the average price achieved per room has remained relatively static, decreasing by approximately 3% since 2001, to 12,000 approximately €175,000 per room. Due to historically low interest rates, 10,000 reduced gearing and limited supply growth in many markets, there 8,000 have been few distressed sales. Furthermore, these conditions have 6,000 enabled hotel owners to maintain greater control and not accept a price 4,000 that illustrates a depressed market, but instead negotiate a price that 2,000 reflects the future earnings potential of the property. Consequently, the — 1998 1999 2000 2001 2002 2003 strong recovery in single asset investment activity in 2003 was Single Asset Transactions Portfolio Activity achieved in tandem with a most respectable average price per room Source: HVS International Research sold. HVS International European Hotel Transactions 2003 1 acquired from Accor SA and Accor Figure 2 European Single Asset Hotel Transactions 1995–03 Polska shares in Hekon-Hotele Ekonomiczne SA, which comprised 100 3,500 ten Accor-branded hotels in Poland, one Novotel in Vilnius and the 90 management contract to the 3,000 Mercure Frederic Chopin in 80 Warsaw. The transaction totalled 70 2,500 €92 million, approximately €55,000 per room; 60 2,000 • The sale of the budget hotel chain Premier Lodge, comprising 131 ransactions 50 units, some 8,500 rooms, following 1,500 40 Scottish & Newcastle’s divestment of its retail division for 30 € 1,000 Millions (Approximate) approximately 3.6 billion to Spirit Number of T 20 € Amber Bidco, a new company 500 formed by a consortium of investors 10 including private equity firms Texas Pacific Group and the Blackstone 0 0 Group and also comprising CVC 1995 1996 1997 1998 1999 2000 2001 2002 2003 Capital Partners and Merrill Lynch Global Private Equity; • The disposal of 13 Swallow Hotels Number of Transactions € Millions by Whitbread, some 1,148 rooms, to REIT Asset Management for a Source: HVS International Research consideration of approximately €74 million, approximately €64,000 per Portfolio approximately €3.5 billion, room. The hotels are to be leased to representing a 7% increase on the Maycastle Ltd, a subsidiary of The Transaction previous year, but this level of activity London Inn Group, which remained in a different league to the purchased the hotel operating Activity unprecedented volume achieved in business for a further €7.1 million; he consolidation and 2001, of €8.8 billion. Overall, the total • A hostile takeover bid by Jack globalisation of the hotel industry value of portfolio activity in 2003 Petchey’s Trefick vehicle resulted Tis likely to remain a key theme declined by 60% compared with 2001 in Hanover International being and have wide-ranging implications for and was characterised by small to acquired for approximately investment as hotel operators seek to medium-sized deals. €54.3 million, or approximately create or maintain footholds in key In 2003, significant portfolio €30,000 per room. Jack Petchey is strategic locations. The recent decline in transactions included: understood to have taken 2002 and 2003 of portfolio investment advantage of the depressed equity transactions, which is the overriding • The disposal of 37 Thistle-managed market to build a 49% stake in the cause of the fall in total investment Hotels by a subsidiary of Orb company prior to the takeover. volumes, is not considered to be a Estates to the property entrepreneur lasting phenomenon. Andy Ruhan, through his In addition to the above listed HVS International recorded 14 investment vehicle Atlantic Hotels, portfolio transactions, a number of portfolio transactions in 2003, for approximately €990 million listed hotel companies have been compared with 11 the previous year. In (approximately €181,000 per room); subject to management buyouts and 2003, portfolio activity represented • Orbis SA, the Polish hotel operator, privatised during 2003. We outline Table 1 Selected Portfolio Transactions 2003 (€) Number of Number of Total Sales Price per Portfolio Country Properties Rooms Price (€) Room (€) Buyer Thistle Hotels UK 37 5,454 987,000,000 181,000 Atlantic Hotels Starwood Hotels (Ciga properties) Italy 4 382 290,000,000 759,000 Colony Capital Accor Poland 11 1,677 92,000,000 55,000 Orbis SA Galaxie France 108 7,260 200,000,000 28,000 Duke Street Capital Accor (all leased hotels) UK & Netherlands 35 N/A 590,500,000 — Goldman Sachs Swallow Hotels UK 13 1,148 73,800,000 64,000 REIT Asset Management Accor Hungary 5 1,163 88,000,000 76,000 Erste Bank and Immorent Portfolio of Luxury Country Hotels UK 4 57 22,900,000 402,000 Von Essen Hotels Hanover International UK 15 1,789 54,300,000 30,000 Trefick – Jack Petchey Source: HVS International Research 2 European Hotel Transactions 2003 HVS International below the various public to private Starwood will gain managerial control transactions that have taken place of the 126-strong luxury hotels Sources of during 2003. worldwide. Investment Capital The number of portfolio • Thistle Hotels was taken private by transactions in 2002 and 2003 has been n Europe a large proportion of the its major shareholder BIL far fewer than in previous years. quality hotel supply has International. The unconditional Capital sourced by private equity Itraditionally been owned by direct offer of 130 pence per share valued dominates portfolio activity, totalling investment. This has taken the form of the company at €880 million approximately €1.9 billion in 2003, mainly two options: owner occupation, (£627 million), significantly below which represents 53% of total portfolio whereby the owner controls both the the total hotel book value; activity. While hotel operators are also property and the business risk; or a • Macdonald Hotels was the subject the largest selling group, they still passive investment, whereby the owner of a management buyout through a remain active buyers, as hotel operators controls the real estate but divests of the company called Skye Leisure seek to build a dominant global business risk in the form of a lease or a Ventures, backed by Bank of presence. Meanwhile, sale-and- management contract. Scotland. The management buyout leaseback activity was used With cross-border activity on the offered 260 pence per share for the significantly less during 2003. increase, and as capital for hotel 100-strong group. Since the buyout, However, this structure remains investment becomes available from a 15 hotels, some 825 rooms, that do popular, particularly as a means for wider source of investors, the trend not fit within the company’s hotel owner-operators to raise towards indirect property investment is strategic plan, are reported to be on significant capital to expand, while becoming increasingly prominent.